South African companies participating in the MIT Global Risk Survey (Phase II) rated natural disasters, fires and explosions as uncommon supply chain risks within their operations. The recent natural disasters in Australia, New Zealand and particularly Japan are, however proving the global impact of such incidents on shipping and sourcing and thereby, supply chains.

The MIT Center for Transportation and Logistics Global Risk Survey is being undertaken in South Africa jointly by the Association for Operations Management of Southern Africa (SAPICS) and Imperial Logistics, in collaboration with MIT.

“As the supplier of approximately 20% of semiconductors and 40% of flash memory chips worldwide and a major supplier in the likes of the automotive sector, last week’s earthquake and tsunami in Japan will force companies to rethink their approach to managing supply chain risk,” says Abrie de Swardt, Imperial Logistics Marketing Director.

In terms of risk mitigation perceptions, South African companies believe in a local response over a central risk response action. This falls in between the North American and European approaches, as identified by the global survey findings. “By addressing supply chain risk through a centralised approach, a company aligns its strategies to the holistic context. Response at a local level allows site level staff to apply their own actions immediately,” he explains.

Cross-continent supply chain impact

De Swardt says that supply chains are considerably more vulnerable as a result of being “very much international due to globalisation, involving trading partners from different regions, who speak different languages and have experienced different risks.” The survey identifies seven risk causal factors, including the inability to ship or deliver products, loss of raw material supply, disruption of internal operations, inability to communicate with vendors/other sites, running out of cash and a sudden drop in customer demand.

All seven risks can be triggered locally due to cross-border supply chains. “The scale and unpredictability of the natural disasters occurring across continents requires a more holistic approach to supply chain risk mitigation, both for shippers and Logistics Service Providers (LSPs),” he says. “Comprehensive contingency plans are therefore needed.”

For example, despite Japan’s main airports, Narita and Haneda having been reopened and road and rail disruption reportedly only localised, sea ports have been badly affected. Analysts forecast that “supply chain effects may be one of the longer lasting issues for the logistics sector, with global markets in air and sea freight depressed due to lack of volume.”

Furthermore, with Japan being a major importer of iron ore and coking coal for steel production, as well as thermal coal for power generation, dry bulk shipping could be negatively affected.

South African supply chain perspectives

The survey finds that South Africa is more closely aligned to developed over developing economies, in terms of the top ten supply chain risk factors facing business. The country however, not only resembles developing countries regarding ‘extended electricity loss’ and ‘major software systems failure’ but is required to address these issues more frequently.

Extended loss of electricity is five times more likely to occur in South Africa, compared to the world average. “As a risk needing to be addressed, employee theft/executive misdeeds come in 4 times higher than the international average. Protracted labour disputes are 2.5. times more likely to transpire and disease/infestation, 2.3 times higher,” says de Swardt.

South African companies rated raw material supplier failure as the top supply chain risk, followed by finished goods manufacturing failure, product quality failure, transportation carrier failure and economic recession/market collapse. “Notably, within South African supply chains, companies tend to work more with customers than suppliers in addressing risk management,” he adds.

Increasing supply chain responsiveness

This phase of the survey enables the understanding of broad risk types. “It has identified top supply chain risk factors, both internal and external disruptors and aims to further understanding of perceptions towards risk mitigation, as well as the types of risk management strategies that are currently in place within business,” explains de Swardt.

The third phase of the MIT Global Risk Survey will focus on applied research. Specific elements of the first two phases will be assessed in greater detail, within company specific contexts, in order to provide practical future scenarios.

“As supply chain professionals, we must generate ways in which to make changes designed to increase agility and responsiveness, while reducing costs. This survey’s findings to date enable South African logistics and supply chain management professionals to not only apply best practice, but to lead it,” concludes de Swardt.